Why investing your 2021 tax return is important

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Why investing your 2021 tax return is important

The average tax refund amount is $2,924. What do you plan to do with the money you receive? Your 2021 tax return is the perfect time to invest the chunk of change you get from your return. We’ll give you ten ways to invest your tax refund below. 

Please note that MoneyLion does not provide tax advice. Please consult a tax and/or legal advisor for guidance regarding your individual situation. 

When will I get my tax return?

When you receive your return depends on how early you file your taxes and how you choose to file. For example, the IRS says that you can expect to see your return in about 21 days if you file electronically. You can check the status of your filed tax return on irs.gov.

How much will my tax return be?

Everyone’s tax return is different. But statistically, the average tax return is $2,924. Use a tax calculator to help you get an idea of how much your return will be.

Try Our Tax Calculator

Deciding what to do with your tax refund

Depending on the amount of your return, you have a critical decision to make. You could spend the money on a vacation or shopping spree or use that money to kick start your financial goals. Don’t spend your money as soon as you receive it. Instead, grow your 2021 tax return through investing. 

10 reasons to invest your 2021 tax return

Still not sure what to do with your tax refund? We’ve rounded up ten reasons to invest your 2021 tax return. Read on!

Prepare for the unexpected

Creating an emergency fund will give you the cash that you can access for emergencies like unexpected home or car repairs, medical bills, or job loss. These can all put a strain on your monthly budget. Having an emergency fund should be a top priority to help secure your financial future.  An emergency fund might not feel like an investment, but it should be your first safeguard when things go wrong. 

Obtain financial freedom

Invest in your financial freedom by paying off your debt with your tax return. Your refund money will free up cash for other financial goals, and you’ll save on interest. If you have a lot of debt, tackle the one with the highest interest first. One of the best ways to grow your money is to stop losing it to debt and interest every month. 

Compound your investment earnings

Compound interest means you earn interest on the original amount you saved, and you continue to earn interest. Investing your tax refund into a high yield saving account, CDs, stocks, bonds, retirement savings, or a combination of these can help your money work for you through compounding investment earnings. When you save or invest your money, you have the potential to make money on interest over time.

Meet short- and long-term goals

Investing your refund can help you reach both short-term and long-term financial goals like saving up for a new car or a down payment on a house or home renovations.

Retire with peace of mind

Starting to invest in your retirement fund as early as possible will help grow your savings and provide you with a more comfortable retirement. It may even allow you to retire early. Putting money into your 401(k) or IRA consistently means you have invested with the potential to earn compound interest over the years. So, use the time to your advantage, and invest your 2021 tax return today!

Increase your personal value

Invest in yourself to increase your value to land a promotion or get your dream job. You’re your biggest income-producing asset, so it can be beneficial to complete additional training, take work-related courses, learn new skills, or go back to school. You will be amazed by how much investing in yourself will help your financial future. 

Plan ahead for your kids’ futures

If you’re unsure if you should invest in yourself, then invest in your children. You can contribute your 2021 tax return to a 529 account and fund your children’s schooling. A 529 account is a tax-advantaged account that pays for college, K-12 tuition, and other school expenses. Your kids can also pay off college loans with this money. 

Take advantage of the market

During the covid-19 pandemic, the world faced decreased production and higher unemployment, but the current scenario will pass. By investing your money now, you may have the potential to make a more significant return on your investment.

Reduce taxable income

You can pay less in taxes while investing. Doesn’t that sound like a win-win situation? If you contribute to a traditional IRA or 401(k), it can reduce your taxable income. This gives you even more savings on your next tax return. 

Create a sense of security

When you create a sense of security by investing in your tax refund, you take care of future financial needs. It will give you a sense of security because you know that you will have money when you need it. Use this money for emergencies, big plans, your goals, and retirement. 

Get your future started by investing

Change your mindset about your tax return in 2022. View it as an investment in your future. When you invest in the right way, your money ideally grows over time. With investing, you may create a brighter future for yourself and your loved ones.

FAQs

How long does a tax return take?

It depends, but most electronic filers can expect their return in 21 days. 

What is a tax return?

A tax return is an accounting of how much money you should be paying the government. When you do your taxes each year, you’ll calculate how much you owe in taxes, and from there, you can determine if you’ve overpaid the IRS.

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